A system used to determine the number of days between two coupon dates, which is important in calculating accrued interest and present value when the next coupon payment is less than a full coupon period away. Each bond market has its own day-count convention. |||There are several different types of day-count conventions. For example, a 30/360 day-count convention assumes there are 30 days in a month and 360 days in a year. An actual/actual day-count convention uses the actual number of days in the month and year for a given interest period. This concept might sound illogical. After all, regardless of the particular bond market there will always be 365 days in a year! Nevertheless, these conventions are standards that have developed over time and help to ensure that everybody is on an even playing field when a bond is sold between coupon dates.
The date at which interest begins to accrue on a fixed-income security. Investors who purchase a fixed-income security between interest payment dates must also pay the seller or issuer any interest that has accrued from the dated date to the purchase date, or settlement date, in addition to the face value. |||If the fixed-income security's date of issuance is the same as the dated date, the dated date is also the issue date.
A decimal representing the portion of an annual yield earned in one day. Daily factors are often reported alongside current annualized yield figures, and can be translated back to the current yield by multiplying the number by 365. |||For example, a certificate of deposit that trades for a current annual yield of 5.35% will show a daily factor of (.0535 / 365) or .000146575Daily factors are small amounts to be sure, but many high-level banking and trust institutions will provide this daily interest calculation to their most important institutional accounts. The larger the pool of invested assets becomes, the more meaningful a daily factor calculation will be to the current account balances. Daily factors are also frequently shown for Treasury bond quotes.
A type of callable bond that sells at a premium because the issued coupon payments are above market interest rates. |||Mostly chosen by investors interested in generating high income conservatively. As interest rates rise, the cushion bond depreciates less than regular bonds, since it already pays a premium. On the other hand, as interest rates fall, the cushion bond's value appreciates less due to the risk of the company calling the bond.
The interval between the present date and the maturity date of a bond. |||For example, in 2003, a bond that was issued in 2000 with a maturity date in 2010 would have a current maturity of 7 years (2010-2003).
The current par value of a mortgage-backed security (MBS). Current face is determined by multiplying the current pool factor by the mortgage-backed security's original face value. A mortgage-backed security's current face represents the outstanding principal balance (or its outstanding face value) of the mortgage's underlying the security. If the MBS pays interest and principal on payment dates, the current face will decline after each payment is made. |||Different mortgage-backed securities with the same issue date, same coupon and same original face value can have greatly different current faces. Mortgage-backed securities pay down at different rates based on the characteristics of the underlying loans and on the actual prepayment speed of underlying mortgages.For example, suppose that two mortgage-backed securities (MBS 1 and MBS 2) have the same original face value, but MBS 1 experiences faster prepayments then MBS 2. In this case, MBS 1 will have a lower current face value then MBS 2 as time progresses.
The to-be-announced (TBA) mortgage security of any issue for the current delivery month that is trading closest to, but not exceeding par value. TBA mortgage securities with the current coupon are used as a benchmark throughout the industry to price and value mortgages. |||For example, TBA mortgage securities often trade with interest rates in increments of 0.5%. Therefore, assuming par value is 100, if Fannie Mae 8% mortgage securities are trading at 99.5 and Fannie Mae 8.5% mortgage securities are trading at 100.75, Fannie Mae's 8% security would be the current coupon. A principle of mortgage analysis is that the higher a mortgage-backed security's coupon is relative to the current coupon, the more likely that mortgage-backed security is to prepay. Mortgage investors make this relative value analysis in calculating mortgage-backed security yields and valuations.
A security backed by life insurance which is derived by pooling together a number of transferable life insurance policies. Similar to mortgage-backed securities, the life insurance policies are pooled together and then repackaged into bonds to be sold to investors. |||Death bonds provide investors with an unusual instrument that is less affected by standard financial risks. The only risk of holding a death bond lies with the underlying insured person. If the person lives longer than expected, the bond's yield will begin declining. However, because the death bonds are created from an underlying pool of assets, the individual risk associated with one policy is spread out, making the instruments more stable.